Introduction:
An exchange-traded fund, or ETF as commonly known, is a preferred investment strategy thanks to its low cost and diversification feature. It is easy even if you are a beginner, as it allows you to invest in multiple companies in one sector without selecting individual stocks. One of the most preferred ETFs is energy ETFs, as energy is an important sector for industry building, making it a cornerstone in India's growth. Before we move on to the top-performing energy ETFs India offers, let's understand what energy ETFs are.
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What are Energy ETFs?
An energy ETF is an exchange-traded fund that invests in the oil, gas, and renewable energy sectors. Traditionally, oil and gas have made up the energy sector, but things are fast moving towards renewable green energy. India is now a global leader in renewable energy, with plans to install 500 GW of renewable energy capacity by 2030. This will be one of the world's largest expansions.
As the fourth largest renewable energy installation, its solar and wind power businesses are growing rapidly. These reasons make energy ETFs one of the most preferred investments.
Why Invest in Energy ETFs?
- Diversification: Energy ETFs offer diversification because you're not investing in one company but in the top performing companies in a particular sector.
- Low cost: Passively managed ETFs have lower fees than actively managed funds since they mirror an index.
- Flexible: You can buy and sell ETFs like stocks, providing investment flexibility.
- Growth potential: India's energy reform, renewable energy projects, and infrastructure improvements could boost the sector in the next years.
Top Performing Energy ETFs
Now that we know why energy ETFs are a top investment option, let's look at some of the top-performing energy ETFs India has.
ICICI Prudential Nifty Oil & Gas ETF
This is a highly sought-after energy ETF in the Indian market, offering a comprehensive portfolio of top energy companies. This ETF invests in leaders of the Nifty Energy Index, such as Reliance, ONGC, BPCL, IOC, and GAIL. These companies maintain a stronghold in the Indian energy sector, a firm foundation for the ICICI Prudential Nifty Oil and Gas ETF. It provides a well-balanced portfolio of energy giants and has shown consistent results.
- NAV: 10.69
- Fund size: ₹156.36 Cr
- Expense ratio: 0.4%
- Risk: Very high
Aditya Birla Sun Life Nifty 50 ETF
Even though this is not a 100% energy ETF, it invests a substantial portion of its portfolio in Nifty 50 energy companies. This ETF invests in large companies in the sector, such as Reliance Industries, which is expanding into renewable energy from its primary oil and gas business. Despite its non-energy concentration, this ETF can provide energy market exposure with security and diversification. Through this fund, you can invest in the energy industry without fully committing to it.
- NAV: 26.51
- Fund size: 0.06%
- Expense ratio: ₹2,795.21 Cr
- Risk: Very high
CPSE ETF – Nippon India Mutual Funds
Nippon India's CPSE ETF, which also tracks the Nifty Energy index, is another good option for energy exposure. The ETF invests in major firms such as NTPC, NHPC, Coal India, Oil India, etc. This one is worth considering if you're a fan of the tried-and-true oil, power, and gas titans.
- NAV: 80.23
- Fund size: ₹39,632.7 Cr
- Expense ratio: 0.07%
- Risk: Very High
Drawbacks of Energy ETFs:
Though the energy ETF sector is up and coming, there are certain drawbacks that you need to consider before investing in energy ETFs:
- The constant fluctuation in global oil prices can make energy ETFs volatile.
- Though renewable energy features on energy ETF stocks, most common stocks belong to the oil and gas sector. Any shift in regulation that pushes towards green/renewable energy can impact your returns on oil and gas stocks.
Conclusion:
Energy ETFs offer flexibility to trade in the energy sector, making them a smart choice for modern investors. Whether you're seeking portfolio diversification, want to invest in an industry building sector, or want flexibility, energy ETFs can add value to your financial strategy. Ensure you do due diligence and research before investing.
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